Friday, July 13, 2012

With global stock markets trading in a sea of red, top Citi analyst Tom Fitzpatrick says stocks are poised to plunge another 15% to 20%. Fitzpatrick, a 28 year veteran and top analyst at Citibank, which has $1.3 trillion in assets, sent KWN some extremely powerful charts and notes. Below were his comments with three key charts:

Tom Fitzpatrick latest report:

“German 2-year yields still negative and U.S. long end yields moving lower tells us that there is a want and/or need for safety. We would still expect a test of the trend lows on U.S. 10 year yields at 1.43% and U.S. 30 year yields at 2.50% in the short term. The next support on Japanese 10 year yields is at 71-72 basis points. That does not provide a good backdrop for equities where we now see bearish outside days on all major U.S. Indices.”

It can be challenging to know what trade to make and when to make it, but there are those trading opportunities that are clear and somewhat obvious. Usually, the "keep it simple stupid" trades tend to be the best anyway. Keep in mind that regardless of simple or not, that doesn't necessarily mean the trade will always work out in your favor. One stock that appears to have a "simple" trading opportunity would be that of Valassis Communications, Inc.

Valassis Communications, Inc., together with its subsidiaries, operates as a media and marketing services company primarily in the United States and Europe. Its Shared Mail segment combines the individual print advertisements of various clients into a single shared mail package and distributes the shared mail advertising products to approximately 70 million U.S. households primarily on a weekly basis through the United States Postal Service. This segment also offers solo mail and other products and services, including list procurement, addressing, processing, and the distribution of brochures and circulars. The Neighborhood Targeted segment is involved in the print and media placement of traditional freestanding solo insert formats and specialty print promotion products. The Free-standing Inserts segment prints and distributes four-color booklets containing promotions, primarily coupons from multiple clients through newspapers and shared mails. Its International, Digital Media, and Services segment provides coupon clearing, analytical promotion information management products, and marketing services for retailers and consumer-packaged goods manufacturers.

Before discussing potential trading opportunities, please take a look at the 1-year chart of VCI (Valassis Communications, Inc.) below with my added notations:

Pretty straightforward trade, isn't it? VCI has been holding a very important level of support in the area of $19 (navy) for the last (7) months. No matter what the market has or has not done this year, VCI has not broken below that general area of support. If the market should move lower, VCI will most likely retest its support level for a potential trade.

The Tale of the Tape: VCI has held a very important support level at $19 since December. If the stock were to approach that level again, a trader could enter a long position with a stop placed under that level. If VCI were to break that support, a short position could be made with a stop set above the $19 level.

According to the just released M2 update, the broadest publicly tracked monetary aggregate (because the Fed doesn’t have enough money to keep track of M3) just hit $9,991.5 billion, a $43 billion increase from last week. In other words, this is the last week in which M2 is under $10 trillion. So enjoy it while the “complete lack of penetration” of the monetary base into broader monetary aggregates, and of the Fed’s reserves so tightly locked up in bank vaults, is still only 13 digits (most of it comprising of bank deposits which of course represent no inflationary threat at all). Next week it will be a record 14 digits for the first time, and well on its way to surpassing the $15 trillion held in the deposit-free shadow banking system as the importance (and inflationary convexity) of the two is rapidly interchanged.

This company is still the largest supplier of ammunition to the Pentagon and a significant supplier to NASA. Along with the cutback of government funds to NASA, ATK’s sales to the Department of Defense are estimated to decline 5% this year following a flat year in 2011. Earnings per share for FY 2012 were $7.93, down from $9.32, and analysts are looking for a decline to $6.74 in FY 2013.

After declining to $54 in December, ATK rose to its 200-day moving average at over $60, but turned away from re-establishing its bearish resistance line now at $50. Since March, resistance to rallies has been turned aside at the 50-day moving average, now at $49.78. Note the recent sell signal from the stochastic and the clearly defined bear channel.

Sell ATK at the market or short the stock with a minimum downside target of $43. A system of trailing stop-loss orders could render an even higher return. Short-selling is a speculative, high-risk technique, so protect all shorts with a stop-loss order and check with your broker for any special requirements.

on April 19, 2011, when it was trading at $79, and it has underperformed the market ever since.

This company is still the largest supplier of ammunition to the Pentagon and a significant supplier to NASA. Along with the cutback of government funds to NASA, ATK’s sales to the Department of Defense are estimated to decline 5% this year following a flat year in 2011. Earnings per share for FY 2012 were $7.93, down from $9.32, and analysts are looking for a decline to $6.74 in FY 2013.

After declining to $54 in December, ATK rose to its 200-day moving average at over $60, but turned away from re-establishing its bearish resistance line now at $50. Since March, resistance to rallies has been turned aside at the 50-day moving average, now at $49.78. Note the recent sell signal from the stochastic and the clearly defined bear channel.

Sell ATK at the market or short the stock with a minimum downside target of $43. A system of trailing stop-loss orders could render an even higher return. Short-selling is a speculative, high-risk technique, so protect all shorts with a stop-loss order and check with your broker for any special requirements.

Gold and stock market forecaster have been using cycles in price that repeat every certain amount of trading days to help them spot key reversal areas in the financial market. Almost everything in life seems to go in cycles and commodity prices and the stock market are no different.

As we all know the market is very difficult to forecast when using only one set of analysis like cycles. Analyzing price action, volume, market sentiment, market breadth, trends and inter-market analysis are the other key areas which one must understand before they can be in the zone (ZEN) with the financial market and properly forecast future prices.

This report will show you just how well cycles work if applied and traded properly.

How to Buy Dips and Sell Rips in Gold Using Cycle Analysis

The chart below is of gold and shows its short term trading cycles. I will admit this chart is hard on the eyes and as ugly as they get to bear with me.

Three different cycles have been applied to the chart using a short, intermediate and long term cycle wave length. The general idea here is that you want to trade with the underlying trend, then use these short term cycles to profit from weekly price swings.

Gold has been in a down trend for a year so the focus should be on shorting the bounces. Focusing on selling short gold during a time with 2 or more cycles are topping as you stand a great chance of the price moving in your favor within 1-3 days.

Once the price starts to move in your favor you want to scalp to profits once the short term (green) cycle drops near a reversal level. Once this takes place I always tighten my stops to breakeven, lock in some profits and continue to wait for another cycle to reach the bottom at which point I take more profit off the table and tighten my protective stop once again.

As you can see this is not the perfect system but it makes money, and if you apply more analysis to the market you can lock in more of these moves using intraday charts, volume, and sentiment levels.

Gold Market Cycles

How to Find Market Cycles

You must have an analysis tool that can read the market and find cycles within it. Once you know how many days the most frequent cycles are occurring you can then use a custom cycle indicator to overlay them on the charts as seen in the gold chart above. The visual overlay is the key to spotting market reversals and areas to add to a position or trim profits. Look at the chart below for a visual of how I find my cycles.

Market Forecast Cycles

Gold Cycle Forecast Conclusion:

In short, gold overall remains in a down trend. But from looking at the gold chart and its short term cycles I have a feeling we will be seeing price trade sideways this week and a bounce next week.

The next week will be very interesting as these cycles will actually give us an early warning if the overall gold market is about to bounce or sell off. The question is what the cycles do in the next few days while gold flirts with support…

It does take some time/experience to read the cycles and get a feel for how they move so don’t worry about it if you don’t fully grasp the idea from this short article.

To analyze Halliburton's stock for potential trading opportunities, please take a look at the 1-year chart of HAL (Halliburton Company) below with my added notations:

I latched on to HAL because of the one simple price level at $30. Not only can you see the $30 support (navy) from back in December and May, but the $30 resistance (red) has also been very obvious over the last (2) months. So, the $30 price is key to this stock. If you are bearish, you might short HAL at the $30 mark, but if you are bullish you would want to see the stock break through the $30 resistance.

The Tale of the Tape: HAL presents two simple trading opportunities based on its key level of $30. A short position could be placed on a rally back up to the $30 resistance, or a long play could be made on a break above $30 if that should happen.

The "Chart of the Day" is Target Corp (TGT), which showed up on Tuesday's Barchart "52-Week High" list. Target on Tuesday posted a new 1-1/2 year high of $59.49 and closed up +2.05%. TrendSpotter has been long since May 25 at $57.26. In recent news on the stock, Target management on July 5 said that the company was on track to deliver Q2 sales and adjusted EPS in line with previous guidance. Target on June 13 raised its quarterly dividend to 36 cents from 30 cents per share. Target Corp, with a market cap of $38 billion, operates large-format general merchandise and food discount stores in the United States, which include Target and SuperTarget stores.